Cripple the IRS, cripple services and revenues

Published
7:35 pm CST, Wednesday, March 8, 2017

During his Senate confirmation hearings, Treasury Secretary nominee Steven Mnuchin argued that the IRS was underfunded and understaffed. Now, the Trump administration is reportedly proposing cutting the agency 14.1 percent. less

During his Senate confirmation hearings, Treasury Secretary nominee Steven Mnuchin argued that the IRS was underfunded and understaffed. Now, the Trump administration is reportedly proposing cutting the agency ... more

Photo: Xinhua /TNS

Photo: Xinhua /TNS

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During his Senate confirmation hearings, Treasury Secretary nominee Steven Mnuchin argued that the IRS was underfunded and understaffed. Now, the Trump administration is reportedly proposing cutting the agency 14.1 percent. less

During his Senate confirmation hearings, Treasury Secretary nominee Steven Mnuchin argued that the IRS was underfunded and understaffed. Now, the Trump administration is reportedly proposing cutting the agency ... more

Photo: Xinhua /TNS

Cripple the IRS, cripple services and revenues

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President Donald Trump is finally doing something practical to help his fellow Americans: He’s making it easier for them to cheat on their taxes. Especially those who — like Trump — happen to be super rich.

The Trump administration wants to lop off another 14.1 percent from the Internal Revenue Service’s budget, according to a recent New York Times report. This would compound years of cuts by Republican Congresses and leave the beleaguered agency’s budget 29 percent below its fiscal 2010 level, in inflation-adjusted terms — even though the IRS has more responsibilities than it used to, given multiple complicated new laws and the rise of taxpayer identity theft and cyberattacks.

Americans love to hate the IRS, especially when April 15 approaches. But schadenfreude aside, chopping the agency’s budget is completely wrongheaded. As the government’s main revenue collection agency, the IRS brings in several dollars for every one dollar it spends.

Don’t believe me? During his Senate confirmation hearings, Treasury Secretary nominee Steven Mnuchin argued that the IRS was underfunded and understaffed. He said he was “surprised” to learn the agency’s head count had fallen 30 percent in recent years, which appears to be a reference to staffing in key IRS enforcement positions.

He added that Trump would have no problem grasping the shortsightedness of further cuts.

“I can assure you that the president-elect understands the concept of ‘we add people, we make money,’” Mnuchin said. “That’s a very quick conversation with Donald Trump.”

Either Trump is not as fast a learner as Mnuchin claimed, or someone else is setting fiscal policy in this administration.

In any case, there are at least two major reasons why IRS spending offers a high return on investment.

The first is the agency’s work promoting voluntary tax compliance, through which the vast majority of revenue is collected.

The tax code is extremely complicated (a flaw for which you should fault Congress, not the IRS), and Americans need help to make sure they’re paying what they owe. Each year, the IRS receives more than 5 million visits at its walk-in sites, 10 million letters and 100 million calls from taxpayers. Adequately funding the agency helps those who want to comply with the law.

Today, despite our byzantine tax code, the United States actually has among the highest rates of voluntary tax compliance in the world. But that stellar record may end, thanks to declining IRS service, if Americans find it too frustrating to get answers to their questions, or if they become resentful because they believe their neighbors (or corporations, or presidents) aren’t paying their fair share.

Or if they no longer fear getting caught for cheating. Which brings me to the other reason the IRS offers such a good bang for its buck: its enforcement activities.

In the wake of deteriorating service, Republicans have been urging the IRS to shift more of its resources away from enforcement. As a result, the U.S. government has been forgoing an estimated $5 billion a year in enforcement revenue just to save a few hundred million dollars in spending.

According to newly released IRS data, audits of individual and corporate income-tax returns plummeted last year. The biggest declines were for the highest earners and biggest companies.

In fact, over the past several years, audit rates of companies with at least $10 million in assets — that is, the firms that can afford to hire armies of accountants and tax attorneys to aggressively tax plan — fell by half. The same is true of individuals with incomes of at least $1 million.

Individuals such as, of course, Donald Trump.

So maybe we should look on the bright side. With fewer IRS agents to go around, maybe Trump’s “continuous” audit can end at last, and he’ll finally share his top-secret tax returns. Hey, a girl can dream.